Finance companies primarily provide loans to consumers and businesses. They specialize in offering credit facilities, which can include personal loans, auto loans, and business financing, often targeting borrowers who may not qualify for traditional bank loans. Unlike commercial banks, finance companies do not accept deposits; instead, they raise funds through other means, such as issuing bonds or borrowing from banks.
One key difference between finance companies and commercial banks is the nature of their lending practices. While commercial banks generally offer a broader range of financial services—including savings and checking accounts, mortgages, and investment options—finance companies tend to focus narrowly on consumer and commercial credit, often with more flexible terms but higher interest rates.
Additionally, finance companies may assess creditworthiness differently than banks, sometimes using alternative methods that allow them to cater to a wider array of clients, including those with poorer credit histories. This can make finance companies an attractive option for individuals and businesses needing immediate access to funds, but it also means borrowers should be aware of the potentially higher costs associated with these loans.